STORM IN A COFFEE CUP – THE BARISTA STORY

A case submitted for

BEST CASE STUDY PRESENTATION

at

THE 19TH AIMS ANNUAL CONVENTION 2007

Submitted by

MARY CHERIAN

&

H. AJAY KHANNA

Venue: IIM, Kolkotta

Dates: Aug. 23 – 25, 2007.

marycherian, ajaykhanna PSGIM 1

 AUTHOR’S PROFILE

Mary Cherian, Faculty, PSG Institute of Management, PSG College of Technology,

Coimbatore has 6 years of industrial and 12 years of teaching experience. She is involved
in research and consultancy and her areas of interest are Services and Strategy. Her
special areas of interest are measurement of Services Quality and implementation of
Balanced Scorecards. She has attended training programmes by Dr. Kaplan on the
Balanced Scorecard.
Email : mc_mktg@psgim.ac.in, marycherian@rediffmail.com
Phone : 0422 – 2577252 extn. 339 (O)
Mobile: 09442002392

H. AJAY KHANNA was a Faculty with the Dept. of Management Sciences, PSG
College of Technology, Coimbatore. Presently he is with the Central Government
organization Bureau of Indian Standards, in an administrative capacity as Assistant
Manager based at Chennai.

marycherian, ajaykhanna PSGIM 2

 Storm in a coffee cup – the Barista story

Executive Summary

Barista Coffee Company, which runs the Barista coffee bars, was setup in Feb

2000 by Turner Morrison group to stir up the liquid coffee retailing market with its

ambitious plans for expansion. Within two years, it became India’s largest and fastest

growing chain of espresso bars and won lot of top awards for excellence in specialty

coffee retailing. Success didn’t come easily to Barista. It was continuously educating

consumers on the coffee experience and was gunning for more stores in India and abroad.

The strategic alliance with Tata Coffee was followed by 2 successive CEO’s charting

different paths for Barista. In addition to this, there was the impact of the acquisition of

the entire 65.6% stake of Turner Morrison by Sterling group’s (Fresh and Honest coffee).

Subsequent years saw Barista change colours, with a major part of its revenues coming

from merchandising, space selling and a variety of food rather than just coffee. News of

acquisition by Lavazza and Starbucks imminent entry into the Indian market is fuelling

speculation about the future of the industry and its dominant players.

marycherian, ajaykhanna PSGIM 3

A sip of “History of coffee”

Coffee was first discovered in Eastern Africa in an area we know today as

Ethiopia. It was only a goat herder by the name Kaldi, who noticed his goats acting

unusually frisky after eating some berries from a bush.

Today, coffee is a giant global industry employing more than 20 million people.

This commodity ranks second only to petroleum in terms of dollars traded worldwide.

With over 400 billion cups consumed every year, coffee is the world’s most popular

beverage. If you can imagine, in Brazil alone, over 5 million people are employed in the

cultivation and harvesting of over 3 billion coffee plants. Sales of premium specialty

coffees in the United States have reached the multi billion dollar level, and are increasing

significantly on an annual basis.

Coffee it is said came to India in the 17 th century, when Baba Budan, a pilgrim

traveling to the holy places of Islam, brought back seven coffee seeds from Yemen.

These seeds were then planted in the hills of Chandragiri, situated in today’s

Chikmangalur district of Karnataka.

Later the commercial exploitation of the drink made more and more enterprising

and pioneering planters take to the cultivation of coffee(Refer Exhibit 1 - State wise

production details). Over the years small holdings coalesced into larger ones that created

bigger coffee estates, almost all of them situated in the Coorg district of Karnataka. The

industry was sailing without many problems till 1930, when the winds of the global

economic depression derailed it. An industry which had always forged ahead on its own

approached the government for succor. This led to the setting up of the Coffee Cess

Committee, which funded activities to promote coffee consumption in the country(Refer

marycherian, ajaykhanna PSGIM 4

Exhibit 3). This latter changed into the Coffee Board of India, in the year 1936. When

the world war became an obstacle for all export routes of Indian coffee, the Coffee Board

transformed itself into a marketing outfit. Planters would sell what they produce to the

Board and the board took on the responsibility of marketing it. This was institutionalized

by the government in 1952, when the Coffee Amendment Bill passed by Parliament made

it mandatory for all planters to compulsorily sell their produce to the Board.

Coffee board was enjoying monopoly till 1960s, when liberalization, aided by a

lot of support from Tata Coffee, got the control on coffee on the Coffee Board and the

situation of monopoly was loosened. This new chapter in the industry’s story has

breathed new life into many plantations, allowing larger outfits like Tata Coffee to dream

big and make their mark through brands in the global coffee market.(Refer exhibit 2 - for

export of coffee from India ).

The Barista History

Espresso, a recent innovation in the way to prepare coffee, obtained its origin in

1822, with the innovation of the first crude espresso machine in France. The Italians

perfected this wonderful machine and were the first to manufacture it. Espresso has

become such an integral part of Italian life and culture, that there are presently over

200,000 espresso bars in Italy.

Barista coffee company, which runs the Barista coffee bars in a branded liquid

coffee retail chain promoted by New Delhi based Java Coffee Co., a subsidiary of Turner

Morrison group. With an initial investment of Rs.55 crore, Barista started its first chain

at Delhi, in Feb 2000. The coffees served at the chain were researched and created by an

Italy based consultant. Though India is accustomed to traditional coffee habits, Barista

marycherian, ajaykhanna PSGIM 5

doesn’t seek to replace the filter coffee habits, as much as it seeks to develop an

alternative taste for espresso based beverages, supplementing the coffee drinking habit.

Not just another coffee pub

Barista means bartender in Italian and the ambience recreated at the barista

espresso is distinctly Italian. The sleek interior with a startup cost of Rs. 50 lakhs per

outlet, one can smell the aroma of coffee across the orange interiors. Under the glass

counter, chocolate cakes sit temptingly beside stuffed sandwiches. The ambience is

created in a manner that the families can enjoy a cup of coffee and spend quality time

over a game of scrabble, while teenagers can strum a guitar. There is also a television for

sports fans, a board covered with post it notes where people can leave messages for

friends and a graffiti board in the bathroom.

About the staff, Barista teaches them how to clear tables, brew coffee to the exact

temperature and also gives them attitude training. They have to learn the customer’s

names to be their friend and confidante. Deol (Former CEO, Barista) had also started a

Barista training academy in Delhi, where new recruits undergo an 18 days induction

programme and a four day refresher course every quarter.

The blends are made from Arabica beans grown in the high altitude of South

India, which come vacuum packed to maintain freshness; Barista offers wide varieties of

coffee both warm and cold. Barista also has different kinds of brewed coffee. A tall glass

of latte or mocha at barista cost Rs 40 without the frills of cream or special flavor. With

various extras, the price could escalate to Rs.90. Sandwiches were priced at between

Rs.30 and Rs.40; where as an espresso at a five star hotel coffee shop will be around

Rs.100. Barista also offers a select range of rich deserts: walnut brownies, Savoy cakes,

marycherian, ajaykhanna PSGIM 6

sugar doughnuts, pound cakes, coffee cakes and seasonal fruit cakes. Veggies like paneer

tikka sandwiches, cheese and tomato sandwiches and roll and slimmers’ choice

sandwiches are the favorites. Also one can get a whole range of chicken snacks namely

smoked chicken, capsicum, onions, gherkins, mayonnaise and lettuce seasoning and tikka

sandwiches stuffed with tandoori chicken tikka, onion tamarind chutney and more…

Customers @ Barista

The general effort of the management at Barista is to make itself a brand where

the key thrust is engagement and not entertainment thereby looking to create an espresso

culture. Barista’s target segments include professionals, working couples and families of

upper and upper middle class who detest the loud ambience of coffee pubs. Industry

observers tend to define Barista’s role in consumer perception as an urban getaway rather

than a hangout like other coffee pubs. Barista concentrates on discovering latent

consumer needs and customer interaction is a crucial process. This helps Barista create

accurate psychographic customer profiles and a chance to link it to marketing efforts.

Repeat customers account for 70 % of Barista’s business. People spend an

average of 45 minutes in the café. A Delhi based research shows that Barista’s target

consumer spends nearly 57 percent of the day outside home. The customer profile

changes as the day advances. The first half witnesses a lot of students dropping by to kill

some time over a cup of coffee followed by professionals coming during the day in the

afternoons or in the early evenings. As night progresses the bar is filled with families and

friends. The ratio of male and female customers at Barista espresso bars is 50:46 while

76 percent are regulars. The Ex-Marketing head of Barista Coffee Company, Sandeep

marycherian, ajaykhanna PSGIM 7

Vyas said “In a country with an inverse sex ratio, having almost equal number of female

customers is phenomenal which proves that Barista is considered a generic brand”

The location of the outlet also plays a role in determining the kind of customers

stepping in. At Khan market in Delhi, journalists, industrialists and politicians frequent

the outlet while the outlet in Bandra in Mumbai is noted for socialite customers. Barista

also ensures each customer type gets to enjoy his/her kind of music. Initially Barista

forced jazz on every one. As the younger customers wanted fresher music, it started

playing latest numbers to keep them happy. After all, the purpose was to offer fast,

friendly and customized service.

Competitors

Barista faces competition from international and regional players such as Café

Coffee day, Qwicky’s coffee bars, Mr. Bean Coffee Junction, Coffee World, etc. Though

the competitors also offer different kinds of coffee, the “coffee experience” at Barista

makes all the difference. The reason is that Barista doesn’t look like the Udupi

restaurants, where strong and sweet south Indian coffee is served and the ambience is

also crucial in distinguishing Barista from the competition. Barista has been positioned

between the luxury of five star coffee shops at the high end and the Udupi restaurant at

the low end. Also Barista has a national presence which its competitors cannot boast of.

Storm in the coffee cup

Barista’s expansion plans were the most frentic in liquid coffee retailing that one

couldn’t imagine. In Feb.2001, Deol made plans of opening 50 outlets across India by

the end of April as part of the immediate expansion strategy and increasing it to 100 by

the end of the year 2001. On May 2001, Deol expected the company’s equity to be Rs.25

marycherian, ajaykhanna PSGIM 8

crore by the year end with Rs.10 crore as the debt component. Till then Barista had

invested Rs.35 crore in 75 outlets believing that all the stores were making cash profits,

only the payback differed in each outlet. On an average, each outlet averaged around

700-800 customers a day, which goes up to a 1000 during weekends with an average

billing of Rs.100 per check.

Deol decided, after the first face of network building, the second phase of

expansion would be looking at the work places of corporates, travel segments like

railway stations, airports etc., He was also strong in his decision that if Barista intends to

undertake the expansion, it should be on its own and not through any franchisee. He

believed, this strategy would clock sales of Rs.32 crores by the fiscal ended March 31,

2002.

By this time, the speculation on Starbucks impending Indian launch had nerved

up Barista’s frenzied expansion. Since Starbucks’s entry will hasten the market

segmentation process, Barista tried to grab the share of the pie before the arrival of

Starbucks. But Deol was highly confident that Starbucks had always struggled wherever

they lacked the first mover advantage. On Feb.2001, Deol had plans to have 800

employees by the year end from 180. He also had plans of taking the Indian grown brand

to other Asian markets like Dubai and Jakarta.

On July 23rd 2001, Tata coffee, Asia’s leading coffee company picked up 34.3

percent equity stake in Barista Coffee Company (enterprise value of little under Rs.100

crore on 2001) through all-cash deal (cash deal of Rs. 26 crore). Besides Tata’s, Barista

employees held an equity stake of 8 percent. The balance was held by the promoter

Turner Morrison, which continued to be the largest stake holder. This combination gave

marycherian, ajaykhanna PSGIM 9

Barista, access to Tata’s roasteries and plantations, as well as helped entering domestic

and international markets. This also opened up institutional segments for Barista like

hotels (the company had also announced its association with all Taj group of hotels with

the opening of its first Barista espresso bar at Taj Mahal hotel, Mansingh road in New

Delhi), airports (nearly 60 percent of the countries airport lounges are run by Tatas) and

in-flight services. Since Starbucks didn’t have a roastery in Asia or roastery partner for

Asia it made Barista’s way easier. Tata tea’s earlier acquisition of an international outfit

Tetley whose products could also be launched in the Barista outlets.

Everybody felt that the strategic tie-up would see the birth of a powerful new

entry in the coffee industry that would enable Barista to achieve market leadership.

Meanwhile Deol planned to install vending machines through Cimbali, an Italian partner

for equipment supply for Barista.

On October 2001, based on the market research by Barista coffee and Indica,

Deol felt that a gap existed in the Indian coffee’s home brewing market. As a result, it

invested Rs.4 crore in the home brewing market by becoming the first to introduce home

brewing products and equipments by a coffee retailing major. Barista wanted to extend

customers’ loyalty to their homes. For this, Barista introduced a home brewing

equipment, the French press. The home brewing products were retailed through select

Barista coffee espresso bars. This move was clearly an attempt to penetrate beyond the

institutional segment. However Deol maintained that the company was aiming at gaining

value share rather than volume share.

After five months, Barista had 38 espresso bars across seven cities, serving

14,000 customers each day. Deol was aiming to have 76 bars across 12 cities by March

marycherian, ajaykhanna PSGIM 10

2002 with a plan of setting up 125 outlets by the end of next financial year. Also Deol

had plans of starting overseas outlets in the Middle East and South East Asia in the

current year, including Malaysia, Oman, UAE, Bahrain, Egypt and Africa.

Deol also negotiated with a number of petroleum companies including Bharat

Petroleum and Indian Oil Corporation to open off premise joints. Since petrol retails like

Indian Oil Corporation and Hindustan petroleum are converting their retail outlets in

metros into convenience stores with restaurants, cyber cafes and shopping malls Barista

started targeting the same segment.

By 2002, Barista had an annual sales of Rs. 650 million, had spent Rs. 600

million to establish itself, operating profit was 17% of sales and in the process had

accumulated losses.

In Jan. 2003 there were 67 espresso bars and Barista wanted to increase it to 150

by the end of 2003. In Mumbai alone Deol wanted to expand its existence from 20 to 50.

He was investing Rs.45 crore per out let and was expecting a sales turnover over of Rs.85

crore by 2003 end. With the help of the home brew market, he believed that it was

achievable.

Barista coffee also entered into marketing alliances with Planet M, Cross Words,

and Art today, Acrus, Ebony Star world etc. These joint promotions with Planet M and

Crosswords reiterated the bond between coffee aficionados and book or music lovers. In

addition, Barista coffee planned to launch a new music collection of CDs by entering into

a tie up with Sony, Evian and Fareerilel. It had also joined hands with Spic Macay (the

society for the promotion of Indian classical music and culture amongst youth), a two and

marycherian, ajaykhanna PSGIM 11

half decade old art and culture movement to bring the greatest of masters into events for

free.

To meet the demand, Barista started outsourcing sandwiches from Oberoi. It also

went for a tie-up with Nilgris and Monginis for their supply of cakes and sandwiches.

Barista also made a tie up with Dutch bank ABN Amro to launch “Bancafe”, a unique

café in the bank concept. While banks would have Barista coffee dispensing machines

on their premises, in reverse, the ABM Amro kiosks and ATM’s would also be at Barista

outlets. Deol believed, since coffee drinking was not a destination but an impulse and

since close to 80% of the time was spent away from home, it would open up bank

customers’ greater access to fine gourmet coffee.

The Barista Coffee Company had drawn up aggressive plans to expand its

retailing business globally and floated a special purpose Vehice (SPV) which would be

the holding company for overseas expansion. BCC also set up a wholly owned

subsidiary, BCI (Barista Coffee International) in Mauritius which would be the holding

company for groups’ expansion of geographic segment. The idea was to have different

companies for different geographical regions to go for joint ventures or into franchisee

agreement with a local partner in different countries. At part of the first phase, Barista

entered Singapore, Bangladesh, Srilanka and Thailand. The second phase would be in

the European region.

In 2003, funds had started to dry up because of the rapid expansion of Barista

Coffee compounded by one quarter of the coffee chains going at a loss. But Deol was

still concentrating on expanding Barista’s network. At that time, Tata was having 34.4

percent stake in Barista Coffee, Barista employees held 8 percent equity while the

marycherian, ajaykhanna PSGIM 12

original promoters Turner Morrison retained the balance. The Barista board had Amit

Judge as the chairman of Turner Morrison, Ravi Deol as CEO, R K Krishnan Kumar as

Chairman, TATA coffee, Homi Khusrokhan as Managing Director of TATA tea, Tariq

Ansari and Mohit Gujral as the Directors.

By the end of 2003, the strategic alliance between Tata Coffee and Barista didn’t

look comfortable. Competitive pressures and suggestions from the new shareholders,

forced TATA to make radical alterations in Barista’s original model sculpted by Deol.

Tatas’ felt that Deol’s plan of increasing the number of outlets when some of the outlets

were not performing well had to be looked into seriously. That meant, instead of quantity

and spread, Barista should concentrate on quality and focus.

This cold war led to a lot of changes in the strategies that Deol had formulated for

Barista. First among the changes was a 15-30% price cut. “Barista was an Indulgence

brand that consumers would experience once in a while. The focus should be to make the

brand a habit. For that democratization of coffee should be done. For example, the

international coffee blends, would be placed at Rs. 45 against Rs. 80 or Rs. 90 earlier.

Prices of Cold Coffees should be brought down by over Rs.10 so were the prices of

cappuccino coffees, from Rs.40 to Rs.30. Frappies too should have Price reductions from

Rs.55 to Rs.40 per cup.

The next change was to move to woo the business class. Till now, Barista had

been a leisure brand, where students, shoppers and young executives would unwind and

recharge. But these customers come visiting between 5.00 p.m. and midnight, leaving

Barista’s expensive assets unutilized at other hours. In order to make its assets sweat

more during the day, barista should get business visitors, who could use the espresso bars

marycherian, ajaykhanna PSGIM 13

as a meeting point. So Barista bars should have wireless Internet access using Wi-Fi

technology. Most importantly, Barista, instead of setting its own stores, it should only

franchise.

The changes not only reflected in the business strategies but also in the people

heading the business. Two key persons quit their posts, first being Global Business Head

Sandeep Vyas and the second being the CEO Ravi Deol. Though Deol’s statement in the

press mentioned that he would be heading to London Business School for higher studies,

the industry felt that he didn’t wish to continue with the recent happenings and didn’t

want to renew his contract since the three-year contract with Barista would be ending in

August. However he would remain on the board of Barista as a non-executive director.

Though the news came as a shock, both Barista and Tata coffee got into the scene

immediately and made COO Yogesh Samat to take charge as the new CEO of Barista

(prior to that Samat was a former Hindustan Lever official, who used to head Lakme

Salvon). Two Senior Managers were brought in from the Tata Group – Brotin Banerjee

as Head of Marketing and Strategy (moved from Tata Chemicals) and Venkataraman as

Head of Finance (from Tata Tea).

The new group felt, taking the Franchisee route was the only way to raise money;

Consolidation instead of expansion would be the new agenda. They decided to exit

unsustainable outlets and help Barista Coffee Company to turnaround. In 2004, the

Sterling group acquired the entire 65.6% stake of Turner Morrison in Barista Coffee

Company ltd. With this acquisition, Tata Coffee now owned 34.4% stake in Barista and

Fresh & Honest Coffee of the Sterling Group company would hold 65.6% stake.

marycherian, ajaykhanna PSGIM 14

 In June 2004, both Tata coffee and Sterling group were in a situation to compete

in the market for selling their own coffee brands and adding to this wagon of load, they

had to turnaround successfully what Deol had left of the Brand Barista.

Changing face of Barista

The new group was instrumental in making Barista change track. Barista changed

its positioning from a premium retail outlet to that of a hangout or a meeting place

frequented by young people. Barista cut prices of nearly all items in its menu card by 25

per cent. A cup of standard cappuccino coffee at Barista is available for Rs 30, down

from Rs 40 earlier, while cold coffee Frappe is available for Rs 40 per cup against Rs 55

earlier. Also Classic cold coffee is now cheaper by Rs 12 at Rs 33 a cup. Apart from this,

Barista has also introduced new low-priced beverages. These price cuts have resulted in

15-per cent walk-ins at Barista's outlets.

In another change, Barista diversified its hot beverages menu and introduced

several speciality teas. By mid 2004 Barista had almost 35 % of its revenues coming from

food and the rest from space selling and merchandising.

Mr Banerjee said: "There is an incremental revenue earner in the form of space

selling to ensure that our high street assets are made to `sweat' to the best extent possible.

Today various brand managers are realising that Barista provides them with a platform to

attract and interact with over 12 lakh consumers who frequent Barista and are in the age

bracket of 17-35 years.

"We have certain select properties within Barista such as tent cards, posters, table

top menu, cuts outs etc which can be utilised by other brands to interact and offer

marycherian, ajaykhanna PSGIM 15

something unique and of value to our consumers. Some of the most recent ones are

Microsoft, Emirates, Kotak, Citibank and Tata Indicom."

Barista has also been relying on several promotions to boost its revenues. Some of

the major ones are a Close Up cassette of Shaan, Lee and Archies gift vouchers, movie

tickets, audio cassettes and VCDs.

After consolidation and seeing Barista turning around, Brotin Banerjee, Head –

Marketing and Strategy set out expansion plans. The existing Barista stores in the South

has been witnessing double-digit growth, in footfalls as well as revenue year after year.

For the first time, Barista was seeking to expand through the franchisee route model and

planned to enter B-class towns in the country and middle-class localities in the metros

such as North and East Delhi. By 2005-06, Barista planned to have over 300 outlets

across the country up from 130 at present.

Another change will be the new look that these new stores will be flaunting.

There will be marked changes in the signage, seating arrangements (comfort and normal

seating), new-in-store collaterals, uniform mood posters and a wi-fi enabled environment.

Partha Dattagupta rang in 2006 with expansion plans involving an investment of

Rs. 25 crore to set up 40 new Barista Expresso Bars and Expresso Corners and five new

concept stores called Barista Crème. The premium cafe Barista Crème offers a wide

range of food and beverages, apart from luxurious comfort. The company's revenue mix

currently comprise of 30 per cent from food and 70 per cent from coffee and the Barista

Crème outlets aimed to increase revenue contribution from food.

Come 2007 and the storm does not seem to clear up with Italy's largest coffee

maker, Lavazza, set to buy coffee businesses of South India-based Sterling Infotech

marycherian, ajaykhanna PSGIM 16

Group, including the Barista chain. The two firms have signed an agreement allowing

Lavazza to buy a 100 percent stake in Sterling's Barista Coffee Co. Ltd. and Fresh and

Honest Cafe Ltd. The Italian coffee company will be investing $130 million in India,

which includes the cost of the Barista acquisition, during the next three years. Lavazza,

with annual revenues of over $1.2 billion, operates in over 80 countries. It has a

significant presence in both out of home (café chains and coffee vending) and retail

businesses. This deal is expected to create synergies between the business of Lavazza,

Barista and Fresh & Honest.

The storm in the coffee cup will become murkier with Starbucks, the US-based

coffeehouse chain with thousands of outlets in 39 countries, planning an Indian footprint

this year. The company could have entered India earlier, but the delay can be traced to

not finding the right strategic partner according to Dr Joseph Michelli, author of The

Starbucks Experience: 5 Principles for Turning Ordinary Into Extraordinary.

Meanwhile there is also news that old partners Tata Coffee Ltd is planning to re-

enter beverage retailing, two years after it sold off its investment in the Barista espresso

coffee chain.

Whither Coffee……. coffee industry ?

Internationally, however, 2005 saw coffee sales virtually stagnant, moving ahead

at 0.5 per cent. According to a 2005 research report by the United Nations Food and

Agriculture Organisation, India's coffee consumption has been chugging along at 2.2 per

cent per annum. With consumption pegged at 80,200 tonnes, (Exhibit 3) branded coffee

accounts for 53 per cent, unbranded 40 per cent, with cafes constituting 7 per cent.

marycherian, ajaykhanna PSGIM 17

Industry estimates peg the annual growth rate of the coffee-house segment at a half per

cent.

Despite these figures, coffee houses have been extending their network because

they provide more than just coffee, says Sunalini Menon, Chief Executive of CoffeeLab,

which provides evaluative services for coffee manufacturers. "They are a venue to

socialise, finalise business deals, conduct interviews, listen to music and read in,".

Clearly, despite coffee consumption stagnating, coffee houses are finding it

lucrative to add value activities - book clubs, film clubs, social activities, merchandise

and of course food.

Supplemental Reading on Competitors

1. http://www.cafecoffeeday.com
2. http://www.qwikys.com
3. http://www.tatacoffee.com
4. http://www.coffeeworld.com
5. www.fresh-honest.com

Exhibit 1

marycherian, ajaykhanna PSGIM 18

State-wise Production (2006-07 post blossom forecast and 2005-06 Final estimate) in
metric tones. Source : indiacoffee.org

Post blossom Forecast

Final Estimation 2005/06
State/District 2006/07
Arabica Robusta Total Arabica Robusta Total
Karnataka            
Chikmagalur 42,000 33,000 75,000 36,800 28,600 65,400
Coorge 23,000 89,000 112,000 21,750 83,300 105,050
Hassan 18,000 10,000 28,000 17,750 8,075 25,825
Sub total 83,000 132,000 215,000 76,300 119,975 196,275
             
Kerala            
Wyanad 75 50,500 50,575 75 46,600 46,675
Travancore 775 7,500 8,275 800 7,025 7,825
Nelliampathies 600 1750 2,350 500 1,825 2,325
Sub total 1,450 59,750 61,200 1,375 55,450 56,825
             
Tamilnadu            
Pulneys 8,000 300 8,300 7,900 300 8,200
Nilgiris 1,600 4,000 5,600 1,350 3,675 5,025
Shevroys (Salem) 3,800 0 3,800 3,600 0 3,600
Anamalais
1,525 475 2,000 1,525 475 2,000
(Coimbatore)
Sub total 14,925 4,775 19,700 14,375 4,450 18,825
             
Non Traditional
           
Areas
Andhra Pradesh &
4,200 0 4,200 1,775 50 1,825
Orissa
North Eastern
125 75 200 175 75 250
Region
Sub Total 4,325 75 4,400 1,950 125 2,075
             
Grand Total
103,700 196,600 300,300 94,000 180,000 274,000
(India)

Exhibit 2

Production and Exports: India Vs World * (In '000 bags of 60 kilo each)

marycherian, ajaykhanna PSGIM 19

Source: ICO & Coffee Board.

Production India's Exports India's

Year
World India @ Share(%) World India @ Share (%)
1991-92 101552 3000 2.95 79625 2024 2.54
1992-93 88913 2823 3.18 76780 1817 2.37
1993-94 90366 3533 3.91 73911 2907 3.93
1994-95 95154 3002 3.15 65718 2070 3.15
1995-96 85250 3717 4.36 74014 3572 4.83
1996-97 101865 3417 3.35 81745 2476 3.03
1997-98 95872 3805 3.97 77806 3685 4.74
1998-99 106163 4417 4.16 82554 3442 4.17
1999-00 115117 4867 4.23 92282 4214 4.57
2000-01 112683 5020 4.45 87545 3705 4.23
2001-02 109675 5010 4.57 85279 3441 4.04
2002-03 121924 4588 3.76 89968 3570 3.97
2003-04
103286 4508 4.36 87222 3822 4.38
**
2004-05
113988 4592 4.03 52211 NA NA
**

* Production and exports of ICO members

* * - Provisional, subject to revision.

@ Board ‘s Estimates

Exhibit 3

Estimated Domestic Consumption (1991 - 2005). Source : indiacoffee.org

marycherian, ajaykhanna PSGIM 20

 Calendar Year Quantity (in MT)
1991 55000
1992 55000
1993 55000
1994 55000
1995 55000
1996 55000
1997 55000
1998 55000
1999 55000
2000 60000
2001 64000
2002 68000
2003 70000
2004 75000
2005 80200

TEACHING NOTES

Synopsis

marycherian, ajaykhanna PSGIM 21

Barista Coffee has been on a continuous churn and change is nothing new. There has
been a lot of growth and consolidation happening for Barista with different CEO’s owing
allegiance to different strategies to achieve the same. At a time when one thought that
Barista is settling down, we see acquisition plans, entry of new competitors from over the
seas and older partners re-entering coffee retailing pitching Barista into the centre of the
storm. A key issue in the case is will Barista survive and continue to grow in the soon to
be volatile, competitive market of coffee retailing where major players are sharpening
their axe and jumping in.

This case encourages students to look at the evolution of a company as the environment
evolves, how the company forsees changes and proacts and how it consolidates its
position. It also helps students look at its revenue and growth models, and how they
evolve over a period of time. It also helps students think on issues like brand extensions,
customer retention, alignment of functional strategy to company strategy and services
marketing.

Use

Audience

The case is appropriate for undergraduate, MBA and executive level courses related to
General management, Corporate Strategy, Marketing Strategy, Services Marketing,
Brand Management and Business Environment. The case explores contemporary
management issues like leadership, brand extensions, alignment of functional strategy to
company strategy, scanning of the business environment, revenue and growth models and
marketing of services.

The students could be asked to search for additional information by surfing the websites
of competitors and use the data to do an industry analysis and a SWOT analysis for
Barista.

Sequencing

This case could be used as an introduction in a course on leadership, marketing strategy,

corporate strategy or business environment. It could be used in the middle of a course like
the Balanced Score Card when alignment of strategy is taught or towards the end of a
Brand management course.

Time

This case could be used within a 90 minute block or the instructor can get the students
into groups and ask them to debate if Barista can sustain its growth and will survive and
grow. However, an additional 90 minute block will be necessary for the group discussion

Issues

marycherian, ajaykhanna PSGIM 22

The primary issue in the case is has Barista build a sustainable competitive advantage
with a product that is a commodity, in a market that is still unpredictable and volatile.
The case demonstrates how a firm responds to stimulus in the environment and can be
agile.

One of the interesting aspects of the case is that participants can examine how change in
strategic goals change the business model of the firm. They can also examine concepts
like how to become a market driver and how to deliver value to the customer.

Finally, the case is an example of aggressive marketing techniques to establish and build
a brand.

The exhibits are useful to understand production and consumption of coffee in India and
in the world.(Refer Exhibits 1 to 3).

Assignment Questions

Assignment questions could be framed based on the area the case is going to be discussed
on. For example for a Corporate Strategy course, assignment questions could be – How
attractive is the coffee retailing industry in India? Does Marketing strategy align with
company strategy? Give examples from the case. Etc. For a Marketing Strategy course,
the probable questions could be – What Marketing strategies helped Barista achieve the
leadership position in the coffee retailing industry? How did Barista differentiate itself
from its competitors? Etc.

Final Remarks

The long term success of coffee retailers cannot be predicted as the market is still nascent
and is dominated by very few players. The story could go any way for Barista in the next
few years as we see more and more competitive activity. However students can be
encouraged to discuss many scenarios and what strategies to follow to achieve each of
these.

marycherian, ajaykhanna PSGIM 23